Friday, March 1, 2013

Officially, since June 2009 the US economy has been undergoing an economic recovery from the December 2007 recession. But where is this recovery? I cannot find it, and neither can millions of unemployed Americans.

The recovery exists only in the official measure of real GDP, which is deflated by an understated measure of inflation, and in the U.3 measure of the unemployment rate, which is declining because it does not count discouraged job seekers who have given up looking for a job.

Neither does the Federal Reserve’s monetary policy. The Fed’s expansive monetary policy of bond purchases to maintain negative real interest rates continues 3.5 years into the recovery. Of course, the reason for the Fed’s negative interest rates is not to boost the economy but to boost asset values on the books of “banks too big to fail.”

The low interest rates raise the prices of the mortgage-backed derivatives and other debt-related assets on the banks’ balance sheets at the expense of interest income for retirees on their savings accounts, money market funds, and Treasury bonds.

Despite recovery’s absence and the lack of job opportunities for Americans, Republicans in Congress are sponsoring bills to enlarge the number of foreigners that corporations can bring in on work visas. The large corporations claim that they cannot find enough skilled Americans. This is one of the most transparent of the constant stream of lies that we are told.

Foreign hires are not additions to the work force, but replacements. The corporations force their American employees to train the foreigners, and then the American employees are discharged. Obviously, if skilled employees were in short supply, they would not be laid off. Moreover, if the skills were in short supply, salaries would be bid up, not down, and the 36% of those who graduated in 2011 with a doctorate degree in engineering would not have been left unemployed. The National Science Foundation’s report, “Doctorate Recipients From U.S. Universities,” says that only 64% of the Ph.D. engineering graduates found a pay check.

As I have reported on numerous occasions for many years, neither the payroll jobs statistics nor the Bureau of Labor Statistics’ job projections show job opportunities for university graduates. But this doesn’t stop Congress from helping US corporations get rid of their American employees in exchange for campaign donations.

There was a time not that long ago when US corporations accepted that they had obligations to their employees, customers, suppliers, the communities in which they were located, and to their shareholders. Today they only acknowledge obligations to shareholders. Everyone else has been thrown to the wolves in order to maximize profits and, thereby, shareholders’ capital gains and executive bonuses.

By focusing on the bottom line at all costs, corporations are destroying the US consumer market. Offshoring jobs reduces labor costs and raises profits, but it also reduces domestic consumer income, thus reducing the domestic market for the corporation’s products. For awhile the reduction in consumer income can be filled by the expansion of consumer debt, but when consumers reach their debt limit sales cannot continue to rise. The consequence of jobs offshoring is the ruination of the domestic consumer market.

Today the stock market is high not from profits from expanding sales revenues, but from labor cost savings.

US economic policy has been focused away from the real problems and onto a consequence of those problems–the large US budget deficit. As no interest group wants to be gored, Congress has been unable to deal with the trillion dollar plus annual budget deficit, the continuation of which raises the specter of dollar collapse and inflation.

John Maynard Keynes made it clear long ago, as has Greece today, that trying to reduce the ratio of debt to GDP by austerity measures doesn’t work. Among the countries in the world the US is in a unique position. It not only has its own central bank to provide the money necessary to finance the government’s deficit, but also the money that is provided, the US dollar, is the world’s reserve currency used to settle international accounts among all nations and, thus, always in demand. The dollar thus serves as the world’s transaction currency and also as a store of value for countries with trade surpluses who invest their surpluses in US Treasury bonds and other dollar-denominated assets.

Without the support that the reserve currency status gives to the dollar’s exchange value (its price in foreign currencies), the enormous expansion in the quantity of dollars produced by the Fed’s years of quantitative easing would have resulted in a drop in the dollar’s exchange value, a rise in interest rates, and a rise in inflation. Since my time in government, the US has become an export-dependent economy, and export-dependent economies are subject to domestic inflation when the currency loses exchange value.

To sum up, the corporations’ focus on the bottom line has disconnected US incomes from the production of the goods and services that the American people consume, thus weakening and ultimately destroying the domestic consumer market. The Fed’s focus on saving banks, which mindless deregulation allowed to become “too big to fail,” has created a bond market bubble of negative real interest rates and a dollar bubble in which the dollar’s exchange rate has not declined in keeping with the large increase in its supply. Both the corporations and the Fed have created a stock market bubble based on profits obtained from labor arbitrage (the substitution of cheaper foreign labor for US labor) and from banks speculating with the money that the Fed is providing to them.

This situation is untenable. Sooner or later something will pop these bubbles, and the consequences will be horrendous.

Americans spent slightly more of their money in January than the month before, the latest Commerce Department report shows, but the rate of income growth hit a 20-year low.

Yes, it was a good month for the US economy in terms of pumping money away on utilities like gas and electric. The Commerce Department said on Friday that consumer spending increased 0.2 percent compared with December — on par more or less with what most economists had predicted — and largely due to a surge in demand for utilities during the winter months. But while that statistic is being touted as a signal of the strengthening economy, other indicators suggest things are not as sound as they may seem.

Personal incomes plummeted in January, the new report adds, with that month’s drop of 3.6 percent being the most significant downward change since January 1993 when Pres. Bill Clinton was just beginning his first term in office. Coupled with a slight surge in spending, the latest news means Americans are largely spending more money than before while saving less.

The news comes only days after a study released by the website Bankrate.com found that barely half of Americans have more money in their savings account then they owe in credit card debt.

Yelena Shulyatyeva, an economist at BNP Paribas, New York, tells Reuters that this could be the start of something much more serious. "We expect a significant decrease in real consumer spending in the first half of the year," says Shulyatyeva. Additionally, the economist says this could mean some underwhelming news for the GDP this quarter.

Speaking to the Associated Press, BMO Capital Markets senior economist Jennifer Lee says that a slight hike in taxes starting on the first of the year is partially to blame for what could become a serious problem in the months to come. "The sting of higher taxes hit home at the start of the year. This will cool spending in the next few months before consumers adjust to higher rates."

James Marple, a senior economist at TD Economics, adds in a USA Today report that, given the latest changes in tax rates and spending cuts, growth during the first half of 2013 is unlikely to exceed a rate of 2 percent.

"At this pace, the unemployment will not improve and pressure will remain on the Federal Reserve to continue its asset purchase program,” Marple said.

Earlier in the week, an analysis conducted by MSCI Inc. concluded that current economy-saving policies enacted by Federal Reserve Chairman Ben Bernanke could cause the country’s central bank to lose half a trillion dollars during the next three years.

January’s 3.6 percent decline in income growth comes after an increase of 2.6 percent one month earlier, results that are typical given the holiday shopping season.

Are too-big-to-fail banks organized criminal conspiracies? And if so, shouldn't we seize their assets, just like we do to drug cartels?

Let's examine their sorry record of deceit and deception that has surfaced in just the past two months:

Loan Sharking

You want to get really, really pissed off? Then read "Major Banks Aid in Payday Loans Banned by States " by Jessica Silver-Greenberg in the New York Times (2/23/13). In sickening detail, she describes how the largest banks in the United States are facilitating modern loansharking by working with Internet payday loan companies to escape anti-loansharking state laws. These payday firms extract enormous interest rates that often run over 500 percent a year. (Fifteen states prohibit payday loans entirely, and all states have usury limits ranging from 8 to 24 percent. See the list .)

The big banks, however, don't make the loans. They hide behind the scenes to facilitate the transactions through automatic withdrawals from the victim's bank account to the loansharking payday companies. Without those services from the big banks, these Internet loansharks could not operate.

Enabling the payday loansharks to evade the law is bad enough. But even more deplorable is why the big banks are involved in the first place.

For the banks, it can be a lucrative partnership. At first blush, processing automatic withdrawals hardly seems like a source of profit. But many customers are already on shaky financial footing. The withdrawals often set off a cascade of fees from problems like overdrafts. Roughly 27 percent of payday loan borrowers say that the loans caused them to overdraw their accounts, according to a report released this month by the Pew Charitable Trusts. That fee income is coveted, given that financial regulations limiting fees on debit and credit cards have cost banks billions of dollars.

Take a deep breath and consider what this means. Banks like JPMorgan Chase provide the banking services that allow Internet payday loansharks to exist in the first place, with the sole purpose of breaking the state laws against usury. Then Chase vultures the victims, who are often low-wage earners struggling to make ends meet, by extracting late fees from the victims' accounts. So impoverished single moms, for example, who needed to borrow money to make the rent, get worked over twice: First they get a loan at an interest rate that would make Tony Soprano blush. Then they get nailed with overdraft fees by their loansharking bank.

For Subrina Baptiste, 33, an educational assistant in Brooklyn, the overdraft fees levied by Chase cannibalized her child support income. She said she applied for a $400 loan from Loanshoponline.com and a $700 loan from Advancemetoday.com in 2011. The loans, with annual interest rates of 730 percent and 584 percent respectively, skirt New York law.

Ms. Baptiste said she asked Chase to revoke the automatic withdrawals in October 2011, but was told that she had to ask the lenders instead. In one month, her bank records show, the lenders tried to take money from her account at least six times. Chase charged her $812 in fees and deducted over $600 from her child-support payments to cover them.

Let's be clear: JPMorgan Chase, the big bank that supposedly is run oh-so-well by Obama's favorite banker, Jamie Dimon, is aiding, abetting and profiting from screwing loanshark victims.

What possible justification could anyone at Chase have for being involved in this slimy business? The answer is simple: profit. Dimon and company can't help themselves. They see a dollar in someone else's pocket, even a poor struggling single mom, and they figure out how to put it in their own. Of course, everyone at the top will play dumb, order an investigation and then if necessary, dump some lower-level schlep. More than likely, various government agencies will ask the bank to pay a fine, which will come from the corporate kitty, not the pockets of bank executives. And the banks will promise -- cross their hearts -- never again to commit that precise scam again.

(Update: After the publication of Jessica Silver-Greenberg's devastating article, Jamie Dimon "vowed on Tuesday to change how the bank deals with Internet-based payday lenders that automatically withdraw payments from borrowers’ checking accounts," according to the New York Times. Dimon called the practices "terrible." In a statement, the bank said, it was “taking a thorough look at all of our policies related to these issues and plan to make meaningful changes.”)

Money Laundering for the Mexican Drug Cartels and Rogue Nations

HSBC, the giant British-based bank with a large American subsidiary, agreed on Dec. 11, 2012 to pay $1.9 billion in fines for laundering $881 million for Mexico's Sinaloa cartel and Colombia's Norte del Valle cartel. The operation was so blatant that "Mexican traffickers used boxes specifically designed to the dimensions of an HSBC Mexico teller's window to deposit cash on a daily basis," reports Reuters. They also facilitated "hundreds of millions more in transactions with sanctioned countries," according to the Justice Department.

Our banks got nailed as well. "In the United States, JPMorgan Chase & Co, Wachovia Corp and Citigroup Inc have been cited for anti-money laundering lapses or sanctions violations," continues the Reuters report. My, my, JPMorgan Chase, the biggest bank in the U.S. sure does get around.

And the penalty? A fine (paid by the HSBC shareholders, of course, that amounts to 5.5 weeks of the bank's earnings) and we promise – honest -- never to do it again.

Too Big to Indict?

Wait, it gets worse. Why weren't criminal charges filed against the bank itself? After all, the bank overtly violated money laundering laws. This was no clerical error. The answer is simple: "Too big to Indict," screams the NYT editorial headline. You see federal authorities are worried that if they indict, the bank would fail, which in turn would lead to tens of thousands of lost jobs, just like what happened to Arthur Anderson after its Enron caper, or like the financial hurricane that followed the failure of Lehman Brothers. So if you're a small fish running $10,000 in drug money, you serve time. But if you're a big fish moving nearing a billion dollars, you can laugh all the way to your too-big-to-jail bank.

Fleecing Distressed Homeowners

The big banks, in collusion with hedge funds and the rating agencies, puffed up the housing bubble and then burst it. Nine million workers, due to no fault of their own, lost their jobs in a matter of months. Entire neighborhoods saw their home values crash. Tens of millions faced foreclosure.

The big banks, which were bailed out and survived the crash, sought to foreclose on as many homes as possible, as fast as possible. Hey, that's where the money was. In doing so they resorted to many unsavory practices including illegal robo-signing of foreclosure documents. When nailed by the government, the big banks agreed to provide billions in aid for distressed homeowners. Were they finally forced to do the right thing? Not a chance. (See "Homeowners still face foreclosure despite billion in aid" NYT 2/22.)

The big banks, despite what they say in their press statements, found a convenient loophole in the government settlement. The banks began forgiving second mortgages, and then foreclosing on the first mortgage. That's a cute maneuver because in a foreclosure, the bank rarely can collect on the second mortgage anyway. So they're giving away something of no value to distressed sellers and getting government credit for it. Just another day at the office for our favorite banksters.

JPMorgan Chase, Citigroup and Goldman Sachs have been fined over a billion dollars for creating and selling mortgage-related securities that were designed to fail so their hedge fund buddies could make billions. And then we've got the recent LIBOR scandal where the biggest banks colluded to manipulate interest rates for fun and profit.

It's not about good people or bad people running these banks and hedge funds. It's the very nature of these institutions. That's what they do. They make big money by doing what the rest of us would call cheating. As the record clearly shows, they cheat the second they get the chance.

What kind of institution would loanshark, money launder, fix rates, game mortgage relief programs, and produce products designed to fail? Answer: An institution that should not exist.

Nationalize Now and Create State Banks

There are about 20 too-big-to fail banks which have been designated "systematically significant." These should be immediately nationalized. Shareholder value should be wiped out because these banks are repeatedly violating the law, including aiding and abetting criminal enterprises. All employees should be placed on the federal civil service scale, where the top salary is approximately $130,000.

Can the government run banks? Yes, if we break up the big banks and turn them over to state governments so that each state would have at least one public bank. (North Dakota has a strong working model.) The larger states would have several public state banks. But never again would we allow banks to grow so large as to threaten our financial system and violate the public trust. Let FDIC regulate the state banks. They're actually good at it.

(We'd also have to do something about the shadow banking industry -- the large hedge funds and private equity firms. Eliminating their carried-interest tax loophole and slapping on a strong financial transaction tax would go a long way toward reining them in.)

Won't the most talented bankers leave the industry?

Hurray! It can't happen soon enough. It's time for the best and the brightest to rejoin the human race and help produce value for their fellow citizens. Let them become doctors, research scientists, teachers or even wealthy entrepreneurs who produce tangible goods and services that we want and need. What we don't need are more banksters.

Isn't This Socialism?

We already have socialism for rich financiers. They get to keep all of the upside of their shady machinations and we get to bail them out when they fail. This billionaire bailout society is now so entrenched that our nascent economic recovery of the last two years has been entirely captured by the top 1 percent. Meanwhile the rest of have received nothing. Nada. (See "Why Is the Entire Recovery Going to the Top One Percent? ")

I know, I know, people say, "Next time, just don't bail them out!" Meanwhile, they get to rip us off, day in and day out, until the next crash? No thanks. Put them out of business now. If you have a better idea, let's hear it.

Cody Wilson, like many of his Texan forebears, is fast-talkin’ and fast-shootin’—but unlike his predecessors in the Lone Star State, he’s got 3D printing technology to further his agenda.

Wilson’s non-profit organization, Defense Distributed, released a video this week showing a gun firing off over 600 rounds—illustrating what is likely to be the first wave of semi-automatic and automatic weapons produced by the additive manufacturing process.

Last year, his group famously demonstrated that they could use a 3D-printed “lower” for an AR-15 semi-automatic rifle—but the gun failed after six rounds. Now, after some re-tooling, Defense Distributed has shown that it has fixed the design flaws and can seemingly fire for quite awhile. (The AR-15 is the civilian version of the military M16 rifle.)

The “lower,” or lower receiver part of a firearm, is the crucial part that contains all the gun's operating parts, including the trigger group, and the magazine port. (Under American law, the lower is what's defined as the firearm itself.) The AR is designed to be modular, meaning it can receive different types of “uppers” (barrels) as well as different-sized magazines.

“This is the first publicly printed AR lower demonstrated to withstand a large volume of .223 without structural degradation or failure,” Wilson wrote on Wednesday. “The actual count was 660+ on day 1 with the SLA lower. The test ended when we ran out of ammunition, but this lower could easily withstand 1,000 rounds.”

Already, he says, over 10,000 people have downloaded the lower CAD file, with more on BitTorrent.

"I just made an AK-47 magazine—I’ve got it printing as we speak"

While it may be easy to paint Wilson as a 2nd Amendment-touting conservative, the 25-year-old second-year law student at the Univeristy of Texas, Austin told Ars on Thursday that he’s actually a “crypto-anarchist.”

“I believe in evading and disintermediating the state,” he said.

“It seemed to be something we could build an organization around. Just like Bitcoin can circumvent financial mechanisms. This means you can make something that is contentious and politically important—not just a multicolored cookie cutter—but something important. It’s more about disintermediating some of these control schemes entirely and there’s increasingly little that you can do about it. That’s no longer a valid answer.”

He added, “The message is in what we’re doing—the message is: download this gun.”

And he practices what he preaches: the group’s entire set of design files are made available, for free, on DEFCAD, an online library for everything from grips to lowers to magazines.

“I just made an AK-47 magazine—I’ve got it printing as we speak,” he added. “[I’ve got a] Glock 17, we got a bunch coming, man. We’ve got a library of magazines.”

The specific purposes for which this corporation is organized are: To defend the civil liberty of popular access to arms as guaranteed by the United States Constitution and affirmed by the United States Supreme Court, through facilitating global access to, and the collaborative production of, information and knowledge related to the 3D printing of arms; and to publish and distribute, at no cost to the public, such information and knowledge in promotion of the public interest.

So that raises the question: is this legal? For now, it would appear so.

“There are no restrictions on an individual manufacturing a firearm for personal use,” a Bureau of Alcohol, Tobacco, and Firearms (ATF) spokesperson told Ars. “However, if the individual is engaged in business as a firearms manufacturer, that person must obtain a manufacturing license.”

Wilson said that he’s applied for a federal firearms license in his own name with the ATF in October, and expects to hear a response “any day now.” The ATF did not respond to our request for confirmation of Wilson’s claims.

The law student said that anyone with the same type of 3D printer (“SLA resin and P400 ABS on a used Dimension”) could replicate his efforts with “9 to 12 hours” of print time, and “$150 to $200” in parts, adding that “we’ve proven that you can build one for $50,” presuming the builder is using lower quality materials. (Dimensions typically sell in the $30,000 range—but Wilson says his results could be duplicated using the less-expensive Ultimaker ($1500) or Reprap.”

Assuming Defense Distributed’s AR-15 lower costs around $150 to print, it likely wouldn’t end up being price-competitive with other, commercially-available polymer AR-15 lowers—a few minutes of Google searching turned up options priced at $135 to $170, depending on the manufacturer.

Of course, lots of 3D printing enthusiasts extol the fact that the price of the technology is rapidly falling—as we reported previously, a California company announced a $600 model last year.

Some experts who have been following the world of 3D printing for a while say that from a policy perspective, not much has changed in terms of firearm production, even if is cheaper to make.

“When you're thinking about it from a policy standpoint [the question is]: was this possible before 3D printing? If the answer is yes, what was the existing policy response?” said Michael Weinberg, a staff attorney at Public Knowledge.

“Has this fundamentally changed the dynamic in a way that we need to revisit the response? The answer strikes me as no—it's amazing. You can imagine a world where the 3D printer is accessible to people—I am not convinced that we need a 3D printing-specific solution.”

An earlier model of the 3D-printed AR-15 lower resulted in a crack by the rear takedown pin.

Since December 2012, Wilson and his team have been hard at work on two problems. The first was the fact that the lower’s “buffer tower” (the circular ring part jutting upward that the “upper” fits into) kept breaking—that’s what caused the initial failure that prevented the gun from firing more than six rounds of 5.7x28FN bullets.

So to fix that, the group re-engineered the buffer tower so that it had increased exterior thickness. “We doubled or tripled the thickness,” Wilson said.

With that fix under their belt, the modern gunsmiths tried firing with .223 Remington bullets (standard in an AR-15), which raised the firing range to about 20 rounds before a failure—but that wasn’t good enough.

By the end of the month, there was a different failure, this time on the “rear takedown pin,” where a metal pin fits between the upper and the lower, connecting them together solidly. There, the 3D-printed plastic was cracking around the pin, making the gun less safe to use.

“There was so much force concentrating around it that that was the failure place,” Wilson said. “At first we started using bigger bosses and using longer pins, and realized that it’s still a cross-sectional area. We changed the dimensions of the rear takedown pins.”

He explained that they’ve changed pin design entirely, adding “more surface area around these pins,” as well as an “internal” 90-degree angle, along with various curves and “steps and risers,” that would take advantage of the fact that the housing was made of plastic, not metal.

“The thing was still built like it would be made out of metal,” he said. “This is about plastic and everything needs to be curves, it has to act like more of a spring.”

And that, he points out, is the ultimate lesson in gun manufacture.

“The idea is not to print components for guns that are, but the guns that will be,” he said.

For now though, Wilson said that Defense Distributed has essentially taken over the bulk of his time, and he’s effectively become a part-time amateur engineer.

“I don’t go to [law school] class, but I do pass the exams—here’s looking at you [American Bar Association]!” he told Ars.

Defense Distributed, Wilson says, receives “around $100” in daily donations and has an operating budget of about $2,400 monthly. He says that the next phase will be to publish “primers” teaching people specifically how to make such weapons.

“I don’t consider myself a tech guy, but I do consider myself a crypto-anarchist,” he said.

“I mean the philosophy that Tim May expressed, he predicted WikiLeaks and digital currency. [What I mean is] that the Internet and cryptography are these anarchic tools that can allow for the expanse of citizen action. We like the idea of the market becoming completely black and starving the nation-state from all the money they claim.”

What do we owe our tormentors? It’s a question that haunts those who had childhoods marked by years of neglect and deprivation, or of psychological, physical, and sexual abuse at the hands of one or both parents. Despite this terrible beginning, many people make it out successfully and go on to build satisfying lives. Now their mother or father is old, maybe ailing, possibly broke. With a sense of guilt and dread, these adults are grappling with whether and how to care for those who didn’t care for them.

Rochelle, 37, wrote to me in my role as Slate’s Dear Prudence because of the pressure she was getting from friends to reach out to her mother. Rochelle is a banquet waitress in the Midwest. She has a boyfriend but lives alone and has no children. She and her younger brother grew up with an angry, alcoholic mother who was on welfare but cleaned houses off the books to supplement the check. Rochelle’s parents were never married and split when she was young. Her mother always told her not to have children. “We were the reason her life turned out as it did,” Rochelle says. She told Rochelle she was so stupid that she’d need to find a rich husband to support her. She said she couldn’t wait for Rochelle to turn 18 and get out of her house. Rochelle’s younger brother had difficulties from the start—she looks back and thinks he might have been autistic. Her mother used to take a belt to him and call him the devil and say she wished he’d never been born.

Rochelle started waitressing when she was 15. By 18, she was indeed out of the house and into an abusive relationship with an older man. She broke up with him, got her own apartment, a decent boyfriend, and started working to put herself through college. Then her brother was killed at age 18, shot in the heart during a silly fight over a girl. Rochelle stepped up and took care of all the funeral arrangements. Her father came and, when he left, hugged her goodbye. “That was the first time he ever hugged me,” she recalls. Her mother called later that night, drunk, and said that, by hugging her, Rochelle’s father was trying to molest Rochelle. Rochelle wrote her mother a letter saying she had a drinking problem and needed help. In response she got a letter saying that she was a horrible daughter and she would get what she deserved and that her brother was defective and needed to die.

That was Rochelle’s breaking point—after that, she didn’t see her mother for the next 13 years. Even though Rochelle was barely scraping by, she would sometimes send her mother money for rent, knowing she probably used it for booze. Occasionally, a friend would check on her mother and give her a report. Then last year a tornado struck the town where Rochelle’s mother lived, and Rochelle went to make sure she was all right. That began a sort of rapprochement. Rochelle started taking her mother out to lunch every other Sunday. She did it not because she felt she owed her mother anything: “Absolutely not.” Instead it was for her own sense of self. “To me being a good person means helping people when you can.”

The visits took a toll. Rochelle describes a physical response that sounds a lot like post-traumatic stress disorder. “All the stuff I tried to let go of seeps in. One little thing—the scent of her cigarettes, a mannerism, a word—floods back all these memories.” Rochelle started chewing gum on the drive to see her mother, she says, “because I’m clenching my jaw, white-knuckling the steering wheel.”

Rochelle found that being a good person to her mother was so draining that it left her sleepless and snapping at the people she did love. Her mother’s verbal abuse resumed and her demands started escalating—she wanted more attention, more money. Rochelle got a therapist, and with her help, has again cut ties with her mother. Rochelle says, “I can’t sacrifice my life and sanity in order to try to save her.”

In an essay in the New York Times, psychiatrist Richard Friedman writes that the relationship of adults to their abusive parents “gets little, if any, attention in standard textbooks or in the psychiatric literature.” But Rochelle is not alone. I have been hearing from people in her position for years, adult children weighing whether to reconnect with parents who nearly ruined their lives. Sometimes it’s a letter writer such as “Comfortably Numb” who has cut off contact with a parent but is now being pressured by family members, and even a spouse, to reconcile and forgive. Sometimes a correspondent, like “Her Son,” has hung on to a thread of a relationship, but is now fearful of being further yoked emotionally or financially to a declining parent.

One hallmark of growing up in a frightening home is for the children to think they are the only ones in such circumstances. Even when they reach adulthood and come to understand that many others have had dire childhoods, they might not reveal the details of their abuse to anyone. “The profound isolation that’s imposed on people is a very painful and destructive thing,” says Dr. Vincent Felitti, co-principal investigator of the Adverse Childhood Experiences Study. According to the Centers for Disease Control and Prevention, about 3.3 million cases of abuse or neglect were reported to child protective service agencies in 2010. This vastly undercounts the actual number of horrific and painful childhoods, as most never make it into any official record. The CDC notes that some studies estimate that 20 percent of children will be the victims of such maltreatment. That means a lot of people are wrestling with this legacy.

Loved ones and friends—sometimes even therapists—who urge reconnecting with a parent often speak as if forgiveness will be a psychic aloe vera, a balm that will heal the wounds of the past. They warn of the guilt that will dog the victim if the perpetrator dies estranged. What these people fail to take into account is the potential psychological cost of reconnecting, of dredging up painful memories and reviving destructive patterns.

Eleanor Payson, a marital and family therapist in Michigan and the author of The Wizard of Oz and Other Narcissists, sees some clients who feel it would be immoral to abandon a now-feeble parent, no matter how destructive that person was. Payson says she advises them to find ways to be caring while protecting themselves from further abuse. “One of my missions is helping people not be tyrannized by false guilt or ignore their own pain and needs,” she says. Setting limits is crucial: “You may need to keep yourself in a shark cage with no opportunity to let that person take a bite out of you.” It’s also OK for the conversation to be anodyne. “You can say something respectful, something good-faith-oriented. ‘I wish you well’; ‘I continue to work on my own forgiveness.’ ”

There is no formula for defining one’s obligations to the parents who didn’t fulfill their own. The stories of famous people with abusive parents reveal the wide range of possible responses. Abraham Lincoln couldn't stand his brutish father, Thomas, who hated Abraham’s books and sent him out as a kind of indentured servant. As an adult, Lincoln did occasionally bail out his father financially. But during his father’s final illness, Lincoln ignored letters telling him the end was near. Finally, he wrote not to his father, but his stepbrother to explain his absence: “Say to him that if we could meet now, it is doubtful whether it would not be more painful than pleasant.” Lincoln didn’t attend his father’s funeral.

Warren Buffett remained distantly dutiful to his mother, who had subjected her children to endless, rabid verbal attacks. On the occasions he visited her at the end of her life, he was a “wreck” of anxiety, sitting silently while his female companions made conversation. He was 66 when she died at 92. His tears at her death were not because he was sad or because he missed her, he said in his biography,The Snowball. “It was because of the waste.”

Bruce Springsteen’s frustrated, depressive father took out much of his rage on his son. In a New Yorker profile, David Remnick writes that long after Springsteen’s family had left his unhappy childhood home, he would obsessively drive by the old house. A therapist said to him, “Something went wrong, and you keep going back to see if you can fix it or somehow make it right.” Springsteen finally came to accept he couldn’t. When he became successful he did give his parents the money to buy their dream house. But Springsteen says of this seeming reconciliation, “Of course, all the deeper things go unsaid, that it all could have been a little different.”

We all accept that there is an enduring bond between parent and child. One of the Ten Commandments is to “honor your father and your mother,” though this must have been a difficult admonition for the children of, for example, Abraham, Rebecca, and Jacob. Yet the loyalty of children to even the worst of parents makes perfect biological sense. From an evolutionary perspective, parents, even poor ones, are a child’s best chance for food, shelter, and survival.

Regina Sullivan is a research professor of child and adolescent psychiatry at the NYU Langone School of Medicine who studies emotional attachment in rats. In experiments with rats raised by mothers who neglect or physically hurt their pups, Sullivan has teased out that, when in the presence of the caregiver, the infant brain’s fear and avoidance circuits are suppressed. Attachment “programs the brain,” she says. “The ability of an adult who can say to you, I had a horrible childhood, I don’t like my parents, but then do things to continue to get the parents’ approval, is an example of the strength of human attachment in early life.”

As Springsteen’s experience shows, one doesn’t just leave such childhoods behind, like outgrowing a fear of the dark. Study after study has found that just as an emotionally warm, intellectually stimulating childhood is typically a springboard for a happy, healthy life, an abusive one can cause a litany of problems.

Abuse victims are more likely to suffer from depression, substance abuse, broken relationships, chronic diseases, and even obesity. Many of the high-functioning people I hear from who are wrestling with their debt to their parents have struggled with some of these issues. Rochelle says, “I was a very angry kid, I got into fights in grade school. I’ve worked on it a lot, on not being the spiteful angry person all the time.” She also says she has dealt with food issues her whole life. Her mother brought home groceries once a month and she and her brother would devour the food before unpacking it. “We were starving,” she says. “If I have an addiction, it’s eating.”

Those who refuse to make peace with a failing parent may also find themselves judged harshly. In his memoir Closing Time, Joe Queenan writes of the loathing he and his sisters felt for their alcoholic, physically and psychologically abusive father. When they were grown, Queenan writes: “We talked about him as if he were already dead; such wishful thinking was rooted in the hope that he would kick the bucket before reaching the age when he might expect one of us to take him in,” although they agreed none would. When the father finally died, he wrote, “Clemency was not included in my limited roster of emotions.” In a review of the book in the Wall Street Journal, Alexander Theroux writes, “It is a shameful confession to make in any book.”

In his New York Times essay, Richard Friedman acknowledges that some parent-child relationships are so toxic that they must be severed. But he adds, “Of course, relationships are rarely all good or bad; even the most abusive parents can sometimes be loving, which is why severing a bond should be a tough, and rare decision.” But substitute “husband” for “parents,” and surely Friedman would not advise a woman in such a relationship to carry on because her battering spouse had a few redeeming qualities.

I know from my own inbox that many people are looking for someone, anyone, to tell them they should not feel guilty for declining to care for their abuser. I’m happy to do it. In private correspondence with these letter writers, I sometimes point out that, judging by their accounts, there doesn’t seem to be any acknowledgement of guilt on the part of the parent for neglecting to meet their most basic responsibilities.

A woman I’ll call Beatrice wrote to me as she wrestled with how to respond to a series of emails, calls, and letters from her long-estranged parents. Beatrice, 42, has a doctorate, is a professor of mathematics at a Midwestern university, and lives with her supportive boyfriend. She thinks of herself simultaneously as a “self-made person” and a “damaged” one. She decided long ago not to have children. “I have never felt confident I could trust another person to be the other parent. I’m not sure I could be a competent parent because of what I’ve been through.”

Of her childhood she says, “I don’t remember any happy days at all.” Her father had violent rages; he once knocked her down a flight of stairs. If she couldn’t finish dinner, she would have to sit at the table all night, then get beaten by him if she didn’t clean her plate. Her mother never intervened. Her parents divorced when she was young and her father refused to pay child support. A few years later, her mother became the fifth wife of Beatrice’s new stepfather and life got much worse.

He was unemployed and always around. Beatrice was a young teen and when she got home from school he would go into her bedroom, put his fingers up her vagina, and say he was giving her a massage. He made her touch his genitals. He let his friends come over and “have fun” with her, as long as they didn’t take her virginity. When she was 17, she finally stood up to him and he kicked her out of the house. He told her mother she had taken off of her own accord. By that time she was working 40 hours a week at a crafts store in addition to going to school, and a co-worker let her move into her basement. She contacted her mother and asked her to meet her for lunch. Beatrice explained everything that had been going on with her stepfather. “She told me she didn’t believe a word and didn’t want to hear anymore,” Beatrice says. “That was the last time I saw her.” That was 25 years ago.

Beatrice says that during her childhood she would sometimes feel sorry for herself. Her friends would complain about their parents, or about having bad days, and she would think they had no idea what a bad day was. But she says of being on her own at 17, “The day my stepdad kicked me out, my life got better. I could come home and no one was trying to do anything bad to me. I didn’t have to hide. I didn’t worry about getting hit. That meant everything.”

Last year, separately and out of the blue, Beatrice’s mother and father each got in touch. Her biological father sent a small gift and a card with an update: He was in debt, out of work, and was supporting Beatrice’s troubled sister. A few months later, there was a message on her answering machine. “This is your mother,” the voice said. She wanted Beatrice to know her stepfather had only a few days to live. She told Beatrice she was willing to forgive her. “That made me laugh,” Beatrice says. Her mother started sending emails and Beatrice sent her a reply saying she was busy and couldn’t deal with any of this. She hasn’t heard back from her mother since. But she fears that both her parents will contact her again and explicitly ask for help.

“I’m worried about that happening. I’m worried she’ll call and say, ‘I have cancer.’ I don’t know what I’m going to do,” Beatrice says. “If she knows I’m a professor, I’m sure everyone thinks I make a huge salary and I’m going to save them. My salary is enough for me to do what I want.”

Dr. Ronald Rohner, an emeritus professor of family studies and anthropology at the University of Connecticut, has devoted much of his career to studying parental rejection and its effects. He says there’s little research on adult role reversal—that is, what happens when the parent is vulnerable and wants support from the child. But he says the studies that do exist demonstrate that “it really truly is as you sow, so shall you reap. Those parents who raised children less than lovingly are putting their own dependent old age at risk for being well and lovingly cared for themselves.”

In a 2008 essay in the journalIn Character, history professor Wilfred McClay writes that as a society we have twisted the meaning of forgiveness into a therapeutic act for the victim: “[F]orgiveness is in danger of being debased into a kind of cheap grace, a waiving of standards of justice without which such transactions have no meaning.” Jean Bethke Elshtain, a professor at the University of Chicago Divinity School writes that, “There is a watered-down but widespread form of ‘forgiveness’ best tagged preemptory or exculpatory forgiveness. That is, without any indication of regret or remorse from perpetrators of even the most heinous crimes, we are enjoined by many not to harden our hearts but rather to ‘forgive.’ ”

I agree with these more bracing views about what forgiveness should entail. Choosing not to forgive does not doom someone to being mired in the past forever. Accepting what happened and moving on is a good general principle. But it can be comforting for those being browbeaten to absolve their parents to recognize that forgiveness works best as a mutual endeavor. After all, many adult children of abusers have never heard a word of regret from their parent or parents. People who have the capacity to ruthlessly maltreat their children tend toward self-justification, not shame.

Even apologies can have their limits, as illustrated by a Dear Prudence letter from a mother who called herself “Sadder but Wiser.” She verbally humiliated her son when he was a boy, realized the damage she had done, changed her ways, and apologized. But her son, who recently became a father, has only a coolly cordial relationship with her, and she complained that she wanted more warmth and caring. I suggested that she should be glad that he did see her, stop whining for more, and tell her son she admires that he is giving his little boy the childhood he deserves and that he didn’t get.

It’s wonderful when there can be true reconciliation and healing, when all parties can feel the past has been somehow redeemed. But I don’t think Rochelle, Beatrice, and others like them should be hammered with lectures about the benefits of—here comes that dread word—closure. Sometimes the best thing to do is just close the door.

Thursday, February 28, 2013

JPMorgan Chase & Co. (NYSE: JPM) has announced it will cut 17,000 jobs by the end of next year, many of them in its mortgage banking business.

JPMorgan Chase is the biggest bank in the country by assets. With Tuesday’s announcement, the company will shed about 6.5 percent of the 260,000 employees it said it had as of May 2012.

JPMorgan CEO James Dimon and other executives made the announcement on Tuesday during an investor day presentation at the bank’s New York City headquarters.

Amy Bonitatibus, spokeswoman for J.P. Morgan, said the bulk of the reductions are in the company’s mortgage banking business.

“Fewer homeowners are falling behind on their mortgages, so we need fewer employees to assist those who are struggling,” she said in a statement. “We will work with affected employees to find openings at Chase or other local companies.”

Anthony Polini, banking industry analyst with Raymond James, said the job cuts were expected given the anticipated revenue decline from mortgage banking and the improvement in mortgage-related credit quality.

“The company can use these expense saves to manage through a tough operating environment and still grow earnings per share,” he said. “More importantly, the company remains committed to growing revenue and returning excess capital. [Its] branch expansion plan and international growth opportunities bode well for longer term growth.”

By all other indications, the bank appears to be among the healthiest in the country. In January, JPMorgan reported $5.7 billion profit in the fourth quarter, better than analysts had expected and up from $3.7 billion a year ago in the same period.

Prior to the earnings announcement last month, JPMorgan said it would take a $700 million charge in the fourth quarter due to the nationwide mortgage foreclosure and servicing settlement with the Justice Department and nine other banks.

Wednesday, February 27, 2013

“Those jobs are not coming back.” The late Steve Jobs to Barack Obama.

Hot on the heels of his State of the Union address with its emphasis on the moribund job market, Obama hit the road in search of jobs – but it was a road to a dying land. Pitching the idea of reviving jobs by revving up the manufacturing sector as the “number one priority,” Obama trekked about from Ohio to Alabama in a quest to find some factories with signs of life in them.

But Obama’s strategy is an absurdity, more fitting for the 19th Century than the 21st. Had he embarked on a tour of farms, calling for more jobs in agriculture, a “return to the land,” he would be considered a lunatic. And for good reason. Agriculture is a very small portion of the economy and everyone knows it. But the same is true of manufacturing. Look at this table from the U.S. Census of 2010.

Only 0.7% of the work force is employed in farming, fishing and agriculture.The total number of Americans employed in “production” (aka manufacturing) is about 8 million or only about 6% of the entire workforce (1). While not quite as marginal as agriculture, manufacturing comes close. Hold on, you may say, the low percentage of workers in production in 2010 is due to the Great Recession. No it is not. If you examine similar data from the 2000 census, the total percentage employed in production was only 9%. And 2000 was a year of prosperity before the recession of 2001 and before China joined the WTO and allegedly began to eat our export lunch, a ludicrous charge if carefully examined.

U.S. unemployment hovers around 8%. At least that is the “headline unemployment,” or technically the “U.3” calculation according to the Bureau of Labor Statistics (BLS). But the BLS calculates a much higher number, “U.6” which is about 15%, about twice as high as the “headline” unemployment figure found in the main stream media(2). Manufacturing, even in 2000 employed only 9% of the workforce and its decline in Great Recession accounts for loss of jobs for only by 3% of the workforce. How is such a sector supposed to employ an additional 8-15% of the workforce.? Obama’s call for a “return to the factories” is nearly as ludicrous as a call to “return to the land.” In a modern, developed economy manufacturing is a small percentage of the total. And that is as it should be. Moreover even as the number of jobs in manufacturing has fallen over the last 13 years, manufacturing output is increasing exponentially as can easily be seen by a glance at the second of the two graphs here. (Please dear reader, take a a moment to peruse this graph since it tells us that the decline in manufacturing jobs over the last decade is due in large part to automation – as opposed to offshoring alone.) We are increasingly being freed from that labor which is being taken over by automata. We should welcome that just as we welcomed the mechanization of agriculture.

Right now China and the U.S. each account for about 20% of the world’s manufacturing output, but that requires about 40% of China’s economy and only about 10% of ours. And for the U.S., with 4% of the world’s population, to put out 20% of world manufacturing is not bad at all. The U.S. already has far more than its “share” of world manufacturing. According to a careful study by the Federal Reserve of San Francisco, 88.5% of all U.S. consumer spending is on goods and services made in America. (Only 2.7% is made in China.) And considering only durable goods (i.e., manufactured goods), 67% are made in the U.S. and only 12% are made in China. This is quite the opposite of the views held by most Americans, stubborn myths badly in need of correction.

Steve Jobs warned Obama that “those jobs are not coming back.” Jobs, a man of some precision, chose his words carefully. He did not say that manufacturing was not going to return to the U.S. from its overseas locations. It may and in fact it will, depending on the advantages of producing close to the American market and the wage levels of U.S. workers. Of course the return of manufacturing jobs because of lower wages in America is not something to be desired – at least not if you are a working stiff. The U.S. minimum wage is now $7.25 per hour. The most sophisticated production robots work at a cost of somewhat less than $4 an hour. Robots work more cheaply. Inescapably, manufacturing will return only in an ever more highly automated form with ever fewer jobs.

This same dynamic is taking hold around the world. Look at the much discussed Taiwanese manufacturing firm Foxconn which turns out Apple products in China. Labor is in short supply in China, and hence the workforce is demanding – and getting – higher wages. (Given this fact it is quite amazing to hear “progressives” use the term “slave labor” with respect to China.) FoxConn is alarmed, and it has been moving rapidly to ever higher levels of automation. A few years ago it had no robots. Now it has thousands and in a few years Foxconn plans to have one million robots! The trajectory is the same as in the U.S.

As Mark J. Perry of the University of Michigan at Flint documents relentlessly and repeatedly, the share of manufacturing in the economy is going down worldwide – even as manufacturing output continues to grow exponentially. Ever more is being done with ever less human labor. In the developed countries the industrial proletariat is rapidly disappearing. And it is only a matter of time before the same thing happens across the globe.

These same forces for automation are exerting themselves in every sector of society. How many human personnel have you seen taking payments on toll roads recently? How many human voices have you spoken to when you call a large corporation on the phone? At the Mayo Clinic, robots have replaced humans in carrying drugs from pharmacy to bedside. And they are sufficiently sophisticated that they do not bump into anyone along the way!

So what are we to do? The answer lies in acknowledging that we long ago left the age of scarcity in the developed world. That was made clear a century and a half ago by the old boys in their classic work, The German Ideology. And the developing world is not far behind.

The soundest answer right now is to begin a struggle for a shorter work week with no cut in pay – 32 hours work for 40 hours pay. For a work force of 139 million as in 2010, that translates into 34.8 million additional jobs, i.e., 25% more jobs. A shorter work week decreases the hours of labor available to employers and exerts an upward pressure on wages. In turn that helps to redistribute income in favor of those now sharing less in the abundance that a developed society creates. Let the marketplace act in the favor of the working class. Tactically such a program can be implemented at various levels. First the shorter work week can be the subject of bargaining between employer and employee at the level of the individual enterprise, with supporting strikes and boycotts. For that no legislation is needed which should be pleasing to those who claim to be interested in less government intrusion. Second, the struggle can be waged at the level of state legislatures and Congress. Here the ballot box can be used to reward legislative allies and punish foes.

Finally a look around will tell you that Americans are harassed, with little time for themselves and their loved ones. And more leisure time is badly needed for an overworked and overstressed population with little time for exercise and relaxation so critical to good health and a good life. The cry of “back to the factories” is a call to return to the past, a far less productive and prosperous past at that.

The Bureau of Labor Statistics (BLS) provides different numbers for “manufacturing” than does the Census for “production.” Thus in 2010 according to the BLS, the number employed in “manufacturing” constituted about 8% as opposed to 6% of the labor force as calculated from the Census data above. It seems worthwhile to use Census figures when possible since they are more direct and therefore less controversial. But a difference between 8% and 6% does nothing to alter the essential point being made. Manufacturing is a declining source of employment in a modern, developed economy. And that will not change.

According to the careful work of ShadowStats, the unemployment rate is in the range of 23% and growing.

It was, in a sense, so expectable, so leave-no-child-behind. I’m talking about the arming of American schools. Think of it as the next step in the militarization of this country, which follows all-too-logically from developments since September 11, 2001. In the wake of 9/11, police departments nationwide began to militarize in a big way, and the next thing you knew, the police were looking ever less like old-style neighborhood patrollers and ever more like mini-anti-terror armies. The billy club, the simple sidearm? So Old School. So retro.

In addition, the U.S. military is now offloading billions of dollars worth of its surplus equipment, some of it assumedly used in places like Iraq and Afghanistan against armed insurgents, on police forces even in small towns nationwide. This includes M-16s, helmet-mounted infrared goggles, amphibious tanks, and helicopters. And now, the same up-armoring mentality is being brought to bear on a threat worse than terror: our children. Think of it as the reductio ad absurdum of the new national security state. First, they locked down the airports, then the capital, then the borders, and finally the schools. Now, we’re ready!

But the seldom-asked question is: ready for what? After all, with a few rare exceptions (including unpredictable lone wolf attacks like the attempted assassination of Congresswoman Gabrielle Giffords; the disgruntled software engineer who flew his plane into a building containing an IRS office in Austin, Texas, killing himself and an IRS manager; Major Nidal Hassan’s murderous rampage at Fort Hood, Texas; and the Newtown slaughter), just about all “terror” threats in the U.S. have essentially been FBI sting operations involving crews of “terrorists” who were, by themselves, incapable of planning their way out of the proverbial paper bag.

Imagine for a moment how much better off we might be today if the money that has, for more than a decade, poured into the militarization of the police had been plowed into American education or infrastructure or just about anything else. In that case, we might be prepared for something other than fighting phantoms and -- as Chase Madar, author of The Passion of Bradley Manning, points out in “The School Security America Doesn’t Need” -- handcuffing seven-year-olds. For the TV version of what’s happening in our schools in the post-Newtown moment, you would have to imagine “Homeland” populated by overarmed Muppets and Thomas the Tank (not the Tank Engine).

Tuesday, February 26, 2013 by Common DreamsAn 'elite bipartisan consensus' sends the bill for Wall Street’s mess to the middle class and the president has done far too much "playing along" - Jon Queally, staff writer

As the deadline of the so-called "budget sequestration" nears, progressives are warning President Obama that his obsession with giving credence to the "cut the deficit" antics of Republicans is a trap and that if Democrats don't jettison the failed"economics of austerity" immediately, they'll have no one to blame but themselves.

Robert Kuttner, his colleague at the Campaign for America's Future, names it "The Sequestering of Barack Obama," while The Nation's Katrina vanden Huevel says it's not the president, but "common sense" that's being locked up in Washington as Democrats systematically trade the proven economics of stimulus spending—which has so far saved the economy from ruin following its collapse in 2008—for the 'slash and burn' politics of the Republican party.

With the usual candor, Princeton economist and Nobel laureate Paul Krugman marked the whole debacle down last week as the "Sequester of Fools."

What these progressive voices have in common (in addition to acknowledging the ridiculous nature of the debate by Beltway establishment figures) is agreement that President Obama and the Democrats—far from winning a public opinion "blame game"—are sadly playing directly into the hands of a Republican Party hell bent on pushing an economic austerity agenda on the country at a time when the exact opposite course is needed.

And the chorus of alarm against the President's strategy—namely his willingness to cut programs like Social Security and Medicare while simultaneously embracing the flawed wisdom of budget cuts and deficit reduction—is growing.
As recently as today, in remarks made at a shipbuilding plant in Virginia, Obama said:

Now, the reason that we're even thinking about the sequester is because people are rightly concerned about the deficit and the debt.

But, according to economists, that's exactly "not right." That's exactly "wrong." And this is the problem.

Though too few Democrats will come right out and say it, there is a far better path to both economic recovery and eventual stabilization of the debt ratio. We need to increase public spending in the next few years, using both deficit spending and higher taxes on the wealthy, to get the economy back on a high-growth path. Taxes on the wealthy are better put toward public investment than to deficit reduction. Taxing the rich is far less of a hit to purchasing power than hiking taxes on working families, who spend nearly all of their disposable income. With a program of economic expansion, we can reach a stable long-term debt ratio, but at a higher level of economic output and a more broadly shared prosperity. The goal is economic recovery—and the recovery improves the debt ratio, not the other way around.

Among the economists in this camp are Nobel laureates Paul Krugman and Joseph Stiglitz, as well as Larry Mishel of the Economic Policy Institute, Dean Baker of the Center for Economic and Policy Research, James Galbraith of the University of Texas, and former Biden chief economist Jared Bernstein. In a recent article for the Economic Policy Institute, economists Josh Bivens and Andrew Fieldhouse observed that the “output gap”—the difference between what the economy is producing and what it is capable of producing—is now about a trillion dollars a year. If you cut the budget in such circumstances, you slow growth and get further away from stabilizing the debt ratio. The problem is that these people are not part of the conversation at the White House, which is a dialogue among Obama’s top aides, the corporate austerity-mongers, and Republicans, all of whom believe in deficit reduction.

At the Center for Economic and Policy Research, Dean Baker says the clear problem is that both parties have played into the idea that deficits are a problem when, in fact, the opposite is true.

"Rather than being a bad thing," Baker writes, "the deficit is providing a needed boost to the economy." And challenging the idea that deficit reduction will spur private spending, he adds: "There is no plausible story whereby private-sector demand will fill the gap created by a smaller deficit."

"Colluding in the politics of budget austerity has left Obama with no real capacity to offer the public investment that the economy needs for a robust, broadly-based recovery, and leaves him with the prospect of a weak economy between now and the end of his term–unless he drastically shifts course and repudiates the entire view of the budget and the economy." -Robert Kuttner

Robert Reich, UC Berkeley economist and former labor secretary, argues that unless Obama and the Democrats confront the two-headed lie of "austerity economics and trickle-down economics" pushed daily by the GOP, "the nation will continue to careen from crisis to crisis, showdown to showdown."

The problem is not deficits, according to Reich, but "too few jobs, lousy wages, and slow growth." He continues, "Cutting the budget deficit anytime soon makes the problem worse because it reduces overall demand. As a result, the economy will slow or fall into recession – which enlarges the deficit in proportion."

If you want proof, says Reich, just look at what austerity policies have done to economies across Europe.

Yet, as vanden Huevel writes, "most of Washington — from the newly reelected Democratic president to the self-described insurgent Tea Party Republicans — is ignoring this reality to focus on cutting deficits." She writes:

The Republican Congress seems intent on letting the “sequester” take place — the idiotic across the board cuts that were explicitly designed to be anathema to both parties. Senate Democrats call not for repealing these cuts, but for “paying for” delaying them for a few more months.

Why this fixation? Deficits aren’t careering out of control. In fact, as the Congressional Budget Office reports, in relation to the economy, the deficit has fallen faster over the past three years than at any time since the demobilization after World War II. Calls for cutting Medicare benefits ignore the reality that the slowing rise in Medicare costs has already cut about $500 billion from its projected costs over 10 years compared to estimates made two years ago.

Meanwhile, Kuttner argues that by playing into the GOP's mantra on 'cutting deficits' as a legitimate strategy, Obama has "miscalculated both the tactical politics of the sequester and the depressive economic impact of budget cuts on the rest of his presidency."

He continues:

Long term, colluding in the politics of budget austerity has left Obama with no real capacity to offer the public investment that the economy needs for a robust, broadly-based recovery, and leaves him with the prospect of a weak economy between now and the end of his term–unless he drastically shifts course and repudiates the entire view of the budget and the economy.

And later notes:

As the Greeks have painfully learned over and over again, you can cut spending and raise taxes, and the deficit just keeps growing larger—because you are destroying your economy. The same has been demonstrated for Spain, Portugal, and Britain. Something similar occurred on a more modest scale in the fourth quarter of 2012 right at home.

And George Lakoff, professor of linguistics and political analyst, says that until Democrats confront the GOP's moral stance—one that actually favors the pain imposed by austerity—the Democrats and Obama continue to miss an opportunity to discuss the "heart of the problem" that undergirds the ongoing series of fights over the economy. What that demands, says Lakoff, is a vocal challenge on the part of the Democrats and progressives to address the "moral divide at the heart of our public life."

"Whether they know it or not, those pushing for smaller deficits are promoting less growth and more unemployment." - Dean Baker, CEPR

Taking a deeper look at Republican intentions, Eskow says the ongoing debate amounts to a "hostage crisis" in which austerity economics is being forced on "an unwilling population – [cloaked] in a false debate about how to do it, not about why we shouldn’t do it at all."

And to Republicans, argues Kuttner, it hardly matters if the fight now hurts them in the short term, when their eyes are fixed on 2014 and 2016 when few voters will likely remember the current series of events.

"An austere budget slows the recovery and leaves the Democrats with no economic bragging rights going into 2014 and 2016," he writes.

But would the GOP be so cynical as to trash the economy for political gain? Yes, says Kuttner, before concluding that in upcoming election cycles: "nobody will much remember who was more at fault in the sequester battle of early 2013. The voters will be looking at their own economic situation, and it won't be pretty."

And as Baker concludes: "Whether they know it or not, those pushing for smaller deficits are promoting less growth and more unemployment. It would be the best possible outcome of the sequester debate if this simple point could be made in polite circles in Washington again."

But it's not to be. As vanden Huevel laments:

This elite consensus ignores how we got into the fix we are in. The deficit was under 2 percent of gross domestic product in 2007 and the debt under 40 percent of GDP when Wall Street’s wilding blew up the housing bubble and drove the economy into the Great Recession. Wall Street got bailed out, but the deficit soared to 11 percent of GDP and Americans lost nearly 40 percent of their wealth. You’d think anyone so fixated on avoiding another Pearl Harbor moment would focus on making certain Wall Street was properly shackled, and the too-big-to-fail banks broken up.

But the elite bipartisan consensus is focused on sending the bill for Wall Street’s mess to an already battered middle class, by weakening the basic pillars of a family’s economic security — Social Security, Medicare and Medicaid. And they are a lot closer than anyone thinks. The sequester is just the first of a series of austerity bombs that the Republican Congress will use to extort cuts in these benefits.

It’s time to stop such extortionists from holding our country’s economic future hostage.

The most notable hostage of the austerity trap, however, seems to be President Obama himself. And unless he changes course soon, his critics say, it will be more than his legacy that gets sunk.

We are in the midst of the blame game about the “Sequester.” I wrote last year about the fact that President Obama had twice blocked Republican efforts to remove the Sequester. President Obama went so far as to issue a veto threat to block the second effort. I found contemporaneous reportage on the President’s efforts to preserve the Sequester – and the articles were not critical of those efforts. I found no contemporaneous rebuttal by the administration of these reports.

In fairness, the Republicans did “start it” by threatening to cause the U.S. to default on its debts in 2011. Their actions were grotesquely irresponsible and anti-American. It is also true that the Republicans often supported the Sequester.

The point I was making was not who should be blamed for the insanity of the Sequester. The answer was always both political parties. I raised the President’s efforts to save the Sequester because they revealed his real preferences. Those of us who teach economics explain to our students that what people say about their preferences is not as reliable as how they act. Their actions reveal their true preferences. President Obama has always known that the Sequester is terrible public policy. He has blasted it as a “manufactured crisis .”

The administration has stated publicly the three reasons this is so. First, the Sequester represents self-destructive austerity. Indeed, it would be the fourth act of self-destructive austerity. The August 2011 budget deal already sharply limited spending and the January 2013 “fiscal cliff” deal raised taxes on the wealthiest Americans and restored the full payroll tax. The cumulative effect of these three forms of austerity has already strangled the (modest) recovery – adding the Sequester, particularly given the Eurozone’s austerity-induced recession, could tip us into a gratuitous recession.

Second, the Sequester is a particularly stupid way to inflict austerity on a Nation. It is a bad combination of across the board cuts – but with many exemptions that lead to the cuts concentrating heavily in many vital programs that are already badly underfunded.

Third, conservatives purport to believe in what Paul Krugman derisively calls the “confidence fairy.” They assert that uncertainty explains our inadequate demand. The absurd, self-destructive austerity deals induced or threatened by the Sequester have caused recurrent crises and maximized uncertainty. They also show that the U.S. is not ready for prime time.

When he acted to save the Sequester, Obama proved that he preferred the Sequester to the alternative. When the alternative threatened by the Republicans was causing a default on the U.S. debt (by refusing to increase the debt limit), one could understand Obama’s preference (though even there I would have called the Republican bluff). The Republicans, however, had extended the debt limit in both of the cases that President Obama acted to save the Sequester in 2011.

Similarly, President Obama has revealed his real preferences in the current blame game by not calling for a clean bill eliminating the Sequester. It is striking that as far as I know (1) neither Obama nor any administration official has called for the elimination of the Sequester and (2) we have a fairly silly blame game about how the Sequester was created without discussing the implications of Obama’s continuing failure to call for the elimination of the Sequester despite his knowledge that it is highly self-destructive.

The only logical inference that can be drawn is that Obama remains committed to inflicting the “Grand Bargain” (really, the Grand Betrayal) on the Nation in his quest for a “legacy” and continues to believe that the Sequester provides him the essential leverage he feels he needs to coerce Senate progressives to adopt austerity, make deep cuts in vital social programs, and to begin to unravel the safety net. Obama’s newest budget offer includes cuts to the safety net and provides that 2/3 of the austerity inflicted would consist of spending cuts instead of tax increases. When that package is one’s starting position the end result of any deal will be far worse.In any event, there is a clear answer to how to help our Nation. Both Parties should agree tomorrow to do a clean deal eliminating the Sequester without any conditions. By doing so, Obama would demonstrate that he had no desire to inflict the Grand Betrayal.

The Chairman of the Federal Reserve looked mighty uncomfortable Tuesday being grilled by Sen. Elizabeth Warren (D-MA), a former Harvard professor and economics expert who posed one very blunt question to him that many Americans have been asking for years: “When are we going to get rid of too big to fail?”

His response: “Banks will voluntarily reduce their size” over an undetermined amount of time.

“So I understand that we’re all trying to get to the end of too big to fail, but my question, Mr. chairman, is until we do, should those biggest financial institutions be repaying the American taxpayer that $83 billion [yearly] subsidy they’re getting?” she asked

Bernanke said the aid to big banks through cheaper loans came about because of “market expectations” in 2008 that are no longer correct. “We have an orderly liquidation authority,” he said. “Even in the crisis, in the case of AIG, we wiped out the shareholders.”

Warren stopped him there. “Excuse me though, Mr. chairman, you did not wipe out the shareholders of the largest financial institutions, did you? The big banks?”

“We didn’t have the tools, now we could,” Bernanke insisted.

Moments later, Warren doubled back again. “We’ve now understood this problem for five years,” she said. “When are we going to get rid of too big to fail?”

“Well, as we’ve been discussing, some of these rules take time to develop,” Bernanke said. “The orderly liquidation authority, I think we’ve made progress on that. We’ve got the living wills. I think we’re moving in the right direction. Um, if additional steps are needed then Congress obviously can discuss those, but we do have a plan and I think it’s moving in the right direction.”

“Any idea about when we’re going to arrive in the right direction?” Warren asked.

“It’s, it’s, it’s gonna take…” Bernanke stammered. “It’s not a zero-one thing, it’s over time you’ll see increasing, uh, increasing market expectations that these institutions can fail. I would make another prediction, and predictions is always dangerous, that the benefits of being large are gonna be sm– are gonna decline over time, which means that banks will voluntarily reduce their size because they’re not seeing the benefits they used to get.”

“I read you on this,” Warren said. “I read your predictions on this in your earlier testimony, but so far it looks like they’re getting $83 billion for staying big.”

The Dallas Federal Reserve reported last March that just five “too big to fail” banks control more than 50 percent of the banking industry’s assets. The top 10 institutions controlled over $7 trillion in 2010, or roughly half the U.S. gross domestic product that year.